Carl Icahn’s spiral view has resurfaced again.
Billionaire investor Carl Icahn and founder of Icahn Enterprises is a Wall Street legend, he is the fifth wealthiest fund manager with a net worth of 16.1 billion USD. Carl Icahn was also briefly a special adviser to President Donald Trump.
Carl Icahn’s inflationary spiral view is condemnatory of modern monetary theory (MMT) as a solution to the anticipated economic downturn
“You can print money up to a point, but after that point, it could become very dangerous”
MMT argues that a country printing its own currency, such as the US, can’t go broke and has room to run larger budget deficits so long as prices are subdued. The idea has backing among Democrats like Representative Alexandria Ocasio-Cortez, who’s floated it as a way to pay for a Green New Deal.
“You can print money up to a point, but after that point, it could become very dangerous” Icahn, 83, said in an interview. “We don’t want to hit a wall that you can’t recover from. Once you get into an inflationary spiral, it’s very difficult to get out of it — and therein lies the danger” said Carl Icahn.
Indeed, but until investors perceive US treasuries as a safe bet that there is no other alternative to park capital without exposing it to undue risk then global demand for USD and USD paper assets will continue.
“We don’t want to hit a wall that you can’t recover from. Once you get into an inflationary spiral, it’s very difficult to get out of it”
Carl Icahn’s inflationary spiral view is based on a Weimar Republic hyperinflation scenario playing out
So why don’t we see Americans buying groceries with a wheelbarrow stacked with dollars, despite the Fed pumping 12 plus trillions of dollars into the system? Here is my fifty cents worth, unlike the Weimar Republic the US is an empire with its most prized possession dollar hegemony. The Fed’s policy of unprecedented liquidity injections hasn’t debased the dollar because global demand for dollars exceeds its supply.
“Carl Icahn’s inflationary spiral view is already occurring in asset prices”
In fact, the USD is the best performing currency of advanced economies in 2019
Moreover, as global insecurities rise the greater global demand for dollars and dollar-denominated assets will be, hence the current dollar appreciation, as explained in the dollar milkshake theory. So the dollar is perceived as a safe haven until dollar hegemony remains intact.
What about Carl Icahn’s inflationary spiral view through the optics of financial asset prices?
The “bubble of everything” is well known. Massive amounts of Fed liquidity has resulted in hyper financialized markets. The Dow is trading at record highs above earnings. So Carl Icahn’s inflationary spiral view is already occurring in asset prices.
Carl Icahn’s inflationary spiral view could play under certain conditions
If investors lose confidence in the Fed’s ability to keep the dollar stable with words and “manage” the price of everything through the paper derivatives market then a dollar debasement could cause hyperinflation, bearing in mind all essential commodities are priced in USD. The dollar would also need to be dethroned, the end of dollar hegemony. But that is unlikely to happen without a major geopolitical event occurring. Empires usually don’t fall without a battle.